PSC Decision Set for December 14th on SCE&G Nuclear Debacle

PSC Decision Set for December 14th on SCE&G Nuclear Debacle

Next Friday the Public Service Commission (PSC) will announce its decision on how much SCE&G ratepayers will pay over the next 20 years for the construction costs of the abandoned nuclear project in Fairfield County.

The PSC requested that all parties in this docket submit proposed orders or briefs stating their proposals for the PSC to consider.

Re: Support for the Office of Regulatory Staff’s Proposed Order
Consolidated Dockets Nos. 2017-207-E, 2017-305-E, and 2017-370-E

Dear Ms. Boyd,

In my opening comments at the Public Service Commission (Commission) hearing on the above referenced consolidated dockets, I stated that my goal was for the Commission to order that SCE&G electric rates be rolled back by all the Base Load Review Act (BLRA) rate hikes since 2009, approximately 18%. My other goal was for the return to the customers the over $2 billion in additional rates collected by SCE&G under BLRA rate increases since 2009.

Consequently, the highly comprehensive proposed order of the Office of Regulatory Staff (ORS) comes the closest to achieving both of my goals. While that order does allow SCE&G to recover some of the construction costs of the abandoned project, from the customer’s point of view any rate rollback above 18% serves the purpose of compensating over the next 20 years much of the past higher rates they have paid under the BLRA. Should the rate rollback be 20%, then ratepayers would recover approximately $48.5 million per year and almost $1 billion over 20 years of the 2 billion plus dollars in BLRA rate hikes they have paid since 2009.

Clearly this approach is not equitable for all ratepayers in that even new customers will receive the same rate decrease as SCE&G customers who have been paying the higher rates for years longer. However, this lack of equitability is shared by the SCE&G/Dominion (Joint Applicants) original Customer Benefit Plan (Plan A) which bases its cash up-front on the base year of 2016 (updated to the last 12 months of service under Plan B-L).

The ORS proposal (with or without securitization) is superior to the Joint Applicants’ Plan A (or any other configuration of the Plan A cash up-front concept) in that SCE&G customers, as most customers making purchases of any product, are most concerned with monthly payments going forward. The same customers who originally focus on the “shiny object” of up-front cash in any marketing campaign most of the time reject the up-front cash in exchange for lower payments. They intuitively know that the up-front cash is just a consumer loan that they will pay back (with interest) over time.

The proposed orders by the South Carolina Energy Users Committee and AARP are also good options for the Commission in that they would result in the BLRA rate increases being completely eliminated.

However, it is the ORS proposed order, with or without securitization, that offers the “maximum customer benefits” by addressing, from the customer’s perspective, both the elimination of the BLRA rate hikes and offering some claw back of higher rates already paid due to the failed nuclear project.

The plans offered that are not acceptable or in the best interest of the SCE&G ratepayers are the three offered by the Join Applicants—Plan A, Plan B, and Plan B-L. However, the proposed order of the Joint Applicants is for Plan B-L.

Of the intervening parties in this consolidated docket, only Speaker Jay Lucas argues comprehensively for Plan B-L. His argument is two-fold.

First, the “Commission must set a rate moving forward that is within the constitutional strike zone.” Second, the Commission setting rate levels for the consumer that are too low could “invite” bankruptcy to SCE&G.

Regarding the “Constitutional strike zone”, Speaker Lucas advocates that the Commission adopt a rate level within the Constitutional “zone of reasonableness” surrounding the experimental rate established by the South Carolina Legislature.

If there is an acceptable “zone” surrounding the experimental rate that would meet Constitutional muster, we don’t know how wide that zone is. The Federal judge was given only one rate that resulted in the 15% reduction in pre-abandonment rates.

Speaker Lucas agrees that while the experimental rate resulting a 15% rollback is within the “zone of reasonableness”, the “Constitutional strike zone” could be above or below that rate. The order by the Federal Judge gives us no guidance as to how wide the Constitutional “zone of reasonableness” is.

Within that zone could be lower rates that would yield 16% or 18% or 20% rate rollbacks. We simply don’t know the width of that “Constitutional strike zone”.

However, concern for the “zone of reasonableness” is only important if Dominion Energy withdraws its merger plan with SCANA and SCE&G decides to challenge the Commission’s order citing an unconstitutional taking.

There is no support for the proposition that Dominion will “walk” if the Commission sets consumer rate levels lower than the experimental rate. Dominion has consistently demonstrated that it is willing to draw a new line in the sand for the merger when its most recent line is violated.

The reason is that the merger is a business decision.

Dr. Glenn Hubbard, an economics professor at Columbia University in New York and an SCE&G witness, responded to my questioning saying that Dominion would make a business decision as to pursuing the merger regardless of the final rate levels set by the Commission even if the result was an 18% or 19% rate rollback.

Later, Dominion’s Director of Mergers and Acquisitions, Mr. Prabir Purohit, in responding to my questions also agreed with the assessment that there are other factors besides rates that go into a business decision such as Dominion’s decision to continue with the merger.

Consequently, the Commission should not speculate on or be concerned with Dominion’s willingness to pursue a merger when deciding on the final order. If Dominion is approved for the merger and follows through with it regardless of the set rate levels, then the concept of a Constitutional “zone of reasonableness” was never a valid argument for supporting Plan B-L.

Speaker Lucas’ second argument for supporting Plan B-L is that setting the customer rate levels too low could invite bankruptcy for SCE&G should Dominion withdraw its merger offer.

There was no witness testimony during the hearing that advocated that SCE&G could not survive as a stand-alone company if the Commissions sets rate levels at those proposed by ORS.

SCE&G’s CEO Jimmy Addison stated at the hearing that nobody could predict for certain what would happen in the future if the PSC adopted the ORS proposal. He could not say that SCE&G would file for bankruptcy in that situation.

Instead, testimony was offered at the hearing that SCE&G could continue as a stand-alone company even if the Commission adopts the ORS proposed order, particularly if that order included securitization. SCANA has other sizeable assets it could liquidate to cover the nuclear construction project’s costs not recoverable from the ratepayers. While shareholders might not receive returns as they had in the past, their stocks would increase in value over time as the utility once again becomes healthy under new management.

This scenario is preferred by many Lexington County residents, SCANA/SCE&G employees and South Carolina legislators. The sentiment is that too many corporate headquarters have moved out of South Carolina resulting in the loss of jobs, prestige, civic engagement and local input into company decisions.

An alternative scenario, should the Commission adopt the ORS proposed order and the Dominion merger offer is called off, is that another utility would quickly step in to make an offer to acquire SCANA with full knowledge of the impact of the Commission’s order. This would guarantee that SCE&G would not challenge the Commission’s order in court nor file for bankruptcy.

In summary, I support the ORS proposed order and merger conditions, which are crucial for a financially stable and environmentally responsible energy future for the state. I urge the Commission to adopt the ORS proposed order and merger conditions.